Paul F. Grady and the debate on the authority of the APB

1

PAUL F. GRADY AND THE DEBATE ON THE
AUTHORITY OF THE APB
by
Elliott L. Slocum, Georgia State University
Teresa T. King, Georgia College
Paul F. Grady is recognized in
accounting history as a practitioner, a
researcher, a scholar, and a public servant,
(Previts, September, 1986); indeed, he
epitomized the accounting professional.
Grady began his professional career in 1923
and served as a partner in Arthur Andersen
& Company (1932-1942) and Price
Waterhouse & Company (1944-1960).
During his career in public accounting,
Grady served on many committees of the
American Institute of Certified Public
Accountants (Institute). He chaired the
committee on auditing procedure (1944-
1948) which developed and published
Generally Accepted Auditing Standards: Their
Significance and Scope and Internal Control—
Elements of a Co-Ordinated System and Its
Importance to Management and the Public
Accountant.
Grady served on the special committee
on research, established in December 1957,
which led to the establishment of the
Accounting Principles Board (APB, Board)
and the Research Division of the Institute.
He served on the project advisory
committee for Accounting Research Study No.
3, A Tentative Set of Broad Accounting
Principles for Business Enterprises conducted
by Drs. Robert T. Spouse and Maurice
Moonitz. His opinions concerning this
study led to his research and publication of
Accounting Research Study No. 7, Inventory of
Generally Accepted Accounting Principles for
Business Enterprises in 1965.
Grady accepted the position as director
of research for the Institute in 1963. As
Grady began his work as director, the
Institute was involved in debate regarding
the authority of the APB for generally
accepted accounting principles. The result
of this debate had a profound impact on the
profession. This paper will review the
events involving the issue of the APB's
authority and the role Grady played in the
solution.
The Issue of Authority
Dissension among Institute members
and the continuing widespread adverse
publicity regarding the accounting
profession and the APB had in the view of
many reached crisis level by 1963. Institute
President, Robert Witschey sought to
clarify the APB's objectives and establish
procedures which would avoid in the future
the adversities experienced with the
investment credit issue. Subsequently, the
Board narrowly approved recommendations
that members of the Institute be required to
disclose accounting principles used which
materially varied from Board approved
principles and that auditing standards of
reporting and the Code of Professional
Ethics be amended to assure compliance.
(Carey, 1970)
Alvin Jennings (August, 1964), who
succeeded Weldon Powell as chairman of
the Board, said concerns by the Board
regarding its responsibility to narrow
differences and inconsistencies in
accounting practice led to the discussions
and subsequent proposals. The concerns
were at least partly due to the developments
after the issue of Opinion No. 2 on the
investment credit which emphasized a lack
of agreement on what was meant by
"generally accepted accounting principles"
and created uncertainty about the status of
the Board's pronouncements. As a result,
the Board requested a revision of the
standards of reporting to better relate to the
pronouncements of the Board. Jennings, in
communicating with the executive
6 The Accounting Historians Notebook, Fall, 1993